2 Energy Stocks You Won't Regret Buying in July

As has been the case for much of the past five months, the situation in Iran is best characterized as "day to day" and "fluid." While the on-again, off-again nature of the war and related peace talks is frustrating to investors, those holding energy stocks don't mind.

For the month ending July 27, the largest exchange-traded fund (ETF) dedicated to energy equities is up nearly 11%, confirming that the asset class is again catching a bid amid renewed tensions in Iran. The S&P 500 isn't even up 1% over that period.

These two oil stocks are may be "buys" before July ends. Image source: Getty Images.

That's confirmation that some oil stocks, particularly those in the exploration and production segment, are positively correlated to geopolitical tensions. It's a movie investors have seen time and again, particularly when conflict arises in the Middle East. Given that no market participant has a crystal ball and the situation in Iran is volatile, they may wonder whether the energy sector is worth nibbling on today.

In some cases, the answer is "yes." Count ConocoPhillips (NYSE: COP) and DT Midstream (NYSE: DTM) among the energy names worth examining before August rolls around.

A larger but riskier play

DT Midstream isn't the most widely known energy stock. (We'll get into that momentarily.) Still, ConocoPhillips is the riskier near-term bet, simply because it's an upstream company, and stocks in that group are often closely correlated with oil prices. Said differently, another peace deal or signs of stability in Iran are apt to pressure crude prices and stocks like ConocoPhillips.

Even if that downside arrives, it won't last long. Oil majors haven't rushed to boost production in the wake of the war, so there's no supply glut to worry about. In fact, if the war finally draws to a close and crude prices come down, that could stoke increased demand for leisure travel, potentially benefiting energy stocks like Conoco.

Admittedly, there are many "ifs" in that scenario. What's not up for debate is that Conoco is a structurally sound oil major. Earlier this month, the company added assets in oil-rich Northern Iraq, broadening an already expansive portfolio that's well positioned to capitalize on growing long-term demand for energy products such as crude and liquefied natural gas (LNG). Speaking of LNG, Conoco's related portfolio is considered robust.

Yes, Conoco and its brethren move with near-term headlines, but this is a stock that risk-tolerant investors may want to consider. Several big-time projects, including some tied to LNG, could add $3 billion in cash flow in 2028, with that figure swelling to $7 billion in 2029 when the Willow project in Alaska comes online. That project could produce 180,000 barrels per day at its peak while lowering Conoco's breakeven costs to the low $30-per-barrel range.

Drilling down on DT Midstream

DT Midstream is a good example of an under-the-radar pipeline stock that arguably deserves more attention. A three-year share-price gain of 168% confirms as much as does the fact that pipeline equities aren't as joined at the hip with oil and natural gas prices as are upstream stocks. The latter point makes DT Midstream worth examining at a time when crude prices can tumble at a moment's notice.

For the uninitiated, DT Midstream is more pipeline-centric and less gathering-dependent than many of its peers, and that operating methodology is paying dividends in the form of a $3.4 billion backlog. The pipeline operator is also leveraged to some compelling themes, including data centers and LNG.

Speaking of dividends, DT Midstream yields 2.4%. Higher yields can be found in the midstream space, but this yield implies room for dividend growth, which arrived in February when the company raised the payout by 7%.

The long-term outlook for potential payout growth and share price appreciation is further supported by DT Midstream's deleveraging campaign, which has earned it investment-grade credit ratings and margin superiority. Despite its relative anonymity among many investors, DT Midstream trumps larger, better-known pipeline operators on both gross and profit margins.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.